1 Overview
Free Alongside Ship (FAS) and Free On Board (FOB) are two Incoterms rules designed for sea and inland waterway transport. They define the point at which the seller’s delivery obligation ends and the buyer’s begins. Under FAS, the seller delivers when the goods are placed alongside the vessel at the named port of shipment. Under FOB, the seller delivers when the goods are on board the vessel. Both rules are commonly used in bulk and breakbulk trades, where cargo is loaded directly onto a ship rather than packed into containers at a terminal.
The key difference between FAS and FOB is the loading step. With FAS, the buyer is responsible for loading the goods onto the vessel and bears the risk and cost from the moment the goods are alongside the ship. With FOB, the seller bears the risk and cost until the goods are on board. This distinction matters when loading is complex or expensive, such as with heavy machinery or project cargo. Choosing the wrong rule can shift thousands of dollars in cost and risk between the parties.
Both rules are often confused with CIF and CFR, where the seller arranges and pays for main carriage. Under FAS and FOB, the buyer controls the main carriage and insurance. That gives the buyer flexibility to use its own freight contracts and insurance policies. However, it also means the buyer must be ready to nominate a vessel and loading plan in time. Sellers, meanwhile, must ensure goods are delivered to the correct point and that export clearance is completed.
2 Where the risk and the cost actually land
Under FAS, risk transfers when the goods are placed alongside the vessel at the named port of shipment. That point is usually on the quay or in a lighter, depending on port practice. The seller bears all costs and risks until that moment, including inland transport to the port, export packaging, and export customs clearance. After the goods are alongside, the buyer bears the risk of loss or damage, as well as the cost of loading, stowing, and main carriage. The buyer also pays for insurance if desired.
Under FOB, risk transfers when the goods are on board the vessel at the named port of shipment. The seller bears all costs and risks until the goods are loaded on board, including the loading cost itself. The buyer then bears the risk and cost of main carriage, insurance, and import clearance. In practice, the exact point of risk transfer can be affected by terminal handling charges and port customs. The Incoterms rule is clear, but commercial contracts sometimes allocate specific charges differently.
Cost allocation follows risk. Under FAS, the seller pays for delivery alongside, but not for loading. Under FOB, the seller pays for loading. The buyer always pays for main freight, insurance, and import duties under both rules. If the buyer wants the seller to arrange carriage and insurance, the parties should use CFR or CIF instead. Using FAS or FOB when the seller has better freight rates may lead to higher costs for the buyer. Conversely, using FOB when the buyer cannot control loading may create delays and extra expenses.
3 How the mechanics work end to end
The transaction begins with a sales contract that names FAS or FOB and a specific port of shipment. The seller prepares the goods, packages them for export, and arranges inland transport to the port. For FAS, the seller’s responsibility ends when the goods are placed alongside the vessel, often at a designated terminal or lighterage point. The seller must provide the buyer with a delivery notice and any documents needed to take delivery. The buyer then arranges loading, either directly or through the vessel’s operator.
For FOB, the seller must load the goods on board the vessel. That may involve coordinating with the terminal or stevedores. The seller typically obtains a receipt from the vessel or its agent, which is used to obtain a bill of lading. The bill of lading is a key document: it evidences the contract of carriage and acts as a document of title. The seller then presents the bill of lading and other documents to the buyer, often through banking channels if a letter of credit is used.
Once the goods are on board, the buyer takes over. The buyer pays the main freight to the carrier and arranges insurance if needed. The buyer also handles import customs clearance and pays any duties and taxes. Throughout, communication between seller, buyer, carrier, and customs brokers is essential. Delays in nominating a vessel or providing loading instructions can lead to demurrage or storage charges. Clear documentation and timely notices help avoid such costs.
4 A worked example from door to destination
Imagine a seller in Country A agrees to sell industrial pumps to a buyer in Country B on FOB terms, Port of Loading. The seller packs the pumps, transports them to the port, and completes export customs clearance. The buyer nominates a vessel and informs the seller of the loading date. The seller delivers the pumps to the terminal and loads them on board. Once on board, the seller obtains a bill of lading from the carrier. Risk passes to the buyer at that moment.
The buyer pays the ocean freight and arranges marine insurance. The vessel sails to the Port of Discharge in Country B. The buyer’s customs broker files the import declaration, pays duties and taxes, and arranges inland transport to the buyer’s warehouse. If the pumps are damaged during the ocean voyage, the buyer’s insurance covers the loss, provided the policy was in place. If the damage occurred before loading, the seller would be responsible under FOB.
Now change the terms to FAS. The seller delivers the pumps alongside the vessel but does not load them. Risk passes when the pumps are alongside. The buyer must arrange loading, which may require hiring a stevedore. If a pump falls into the water during loading, the buyer bears the loss. The buyer also pays for loading. This example shows how the choice between FAS and FOB shifts operational responsibility and risk. It also highlights the importance of matching the Incoterms rule to the party best able to control each step.
5 Mistakes that cost money at the border
One common mistake is using FOB or FAS for containerized cargo. These rules are designed for non-containerized goods delivered to a ship. For containers, the goods are typically delivered to a terminal, not alongside or on board. Using FOB for containers can create confusion about when risk passes and who pays terminal handling charges. The ICC recommends FCA for containerized shipments. Using the wrong rule can lead to disputes over charges and insurance gaps.
Another mistake is failing to specify the exact point of delivery. Under FAS, “alongside the vessel” can mean different things at different ports. Under FOB, “on board” may be interpreted differently by terminals. The sales contract should name the specific terminal, berth, or loading point. Without this, the seller may deliver to the wrong place or the buyer may refuse to accept delivery. Such disputes often result in additional storage and demurrage costs.
A third mistake is misunderstanding insurance obligations. Under FAS and FOB, the seller is not required to arrange insurance for the buyer. The buyer must arrange its own coverage from the point of risk transfer. If the buyer assumes the seller’s insurance covers the voyage, it may find itself uninsured. Similarly, sellers sometimes assume they are covered until destination, which is not the case. Clear communication about insurance responsibilities is essential to avoid losses. Finally, failing to complete export customs clearance can halt the shipment. Under FAS and FOB, the seller is responsible for export clearance. If documents are incomplete, the goods may be held at the port, incurring costs and delays.
6 Documents worth keeping
The commercial invoice is fundamental. It details the goods, quantity, value, and terms of sale. It is used by customs to assess duties and taxes. The packing list provides itemized details of the shipment, including weights and dimensions. It helps with cargo handling and customs inspection. The bill of lading is the key transport document. It serves as a receipt for the goods, a contract of carriage, and a document of title. Under FOB, the seller must obtain a clean on-board bill of lading to prove delivery. Under FAS, a mate’s receipt or dock receipt may be used until the bill of lading is issued.
The export customs declaration is required by the seller’s country. It provides proof that goods were exported legally. The certificate of origin may be needed to claim preferential tariffs in the buyer’s country. Inspection certificates, such as those from third-party inspectors, may be required by the sales contract or the buyer’s authorities. Insurance certificates are not mandatory under FAS or FOB, but if the buyer arranges insurance, a copy should be kept for claims.
All these documents should be retained for several years. Customs authorities may audit transactions and request supporting documents. Missing paperwork can lead to penalties or delayed refunds. In letter of credit transactions, discrepancies in documents can cause payment delays. Keeping a complete file for each shipment helps resolve disputes and proves compliance. Electronic records are acceptable in many jurisdictions, but originals may be required for certain customs procedures. A well-organized document trail is a hallmark of professional trade operations.
7 Frequently asked questions
What is the main difference between FAS and FOB? Under FAS, the seller delivers goods alongside the vessel, and the buyer loads them. Under FOB, the seller delivers goods on board the vessel. Risk and cost transfer at those respective points. FOB is more common because it gives the seller control over loading, but FAS can be useful when the buyer has better loading capabilities.
Can FAS or FOB be used for air freight? No. These rules are only for sea and inland waterway transport. For air freight, use FCA, CPT, or CIP. Using sea freight rules for air shipments creates confusion and may leave gaps in risk and cost allocation.
Who pays for insurance under FOB? The buyer typically arranges and pays for insurance. The seller is not obliged to provide insurance. However, the buyer may ask the seller to arrange insurance on the buyer’s behalf, but that is a separate agreement outside the Incoterms rule.
What happens if the goods are damaged during loading under FOB? If the damage occurs before the goods are on board, the seller bears the risk. If the damage occurs after they are on board, the buyer bears the risk. The exact moment of transfer is when the goods are securely on board the vessel.
Do FAS and FOB include import duties? No. Both rules exclude import duties, taxes, and customs clearance. The buyer is responsible for these costs. If the seller agrees to deliver goods to the buyer’s door with duties paid, the parties should use DDP or DAP instead.